ABSTRACT
This chapter demonstrates that environmental quality regulation may enhance producer wealth while it simultaneously reduces an externality problem by restricting access to common property. Considerable attention has been paid in welfare theory to the conflict between producers of externalities and the victims. In the context of the economic theory of regulation, environmental regulation carries with it the implication that producers and the victims of pollution may find it in their self-interest to form a like-minded coalition to lobby for input restrictions and/or output reductions. The potential for intraindustry transfers presents an amendment to the economic theory of regulation—there is also a demand for regulation to redistribute wealth among competing firms in the industry. One of the most interesting regulatory perplexities is the widespread inalienability of permits or rights. The chapter presents empirical evidence using financial market analysis of two different regulations, the Occupational Safety and Health Administration cotton-dust standards and the Environmental Protection Agency prevention of significant deterioration.
